Buying a Home for Long-Term Gain vs. Quick Profit

Buying a home has long been considered a great investment. Historically, homes appreciate in value, and most home purchases return a significant gain to homeowners over time. Savvy investors have even made themselves wealthy through strategic real estate investments. But as more people go into buying a home with the mindset of making a quick profit, more people are finding themselves in financial trouble. If you’re buying for long-term gain, the housing market is still a good investment, but if you’re looking for a quick profit, you’re taking a gamble.

Housing Market Performance Over Time

Historically, the housing market has performed respectably as a long-term investment. You typically won’t yield fast growth, and only in some lucky cities will you get exponential growth, but you’ll enjoy a nice steady appreciation over time. It’s not unheard of for a home’s value to increase anywhere from $20,000 to $50,000 during the life of your mortgage. In high-growth areas, you could see a home appreciate as much as $500,000 in a 10 to 15 year period – or occasionally even shorter in a boom period.

But the key to realizing this kind of gain is to be able to look at housing market performance over time. If you’re on a tight schedule and have to sell at a specific point, you’ll be much more subject to variances in the housing market, and you’re much more likely to experience a loss.

Buying and Selling for Quick Profit

During a boom cycle, it’s possible to buy and sell a home for a quick profit. You can do it by making improvements and selling the home at a profit, or even by just looking for good deals, hanging onto the home for six months or a year, and selling at a profit. But in times of housing market recession, you’re much more likely to suffer a loss.

Homeowners and investors who purchased a home anywhere from 2005 through 2008 may now owe more on the home than they paid. Even homes purchased during the recession may not have been at the low point in the market, and these homes may now be underwater. History shows us that if we wait a few years, home values will rise again. But owners who were forced to sell in the past couple of years might have had to sell at a loss.

With the market now improving, it’s a great time to buy. But the market is still soft, so if you’re looking for a quick profit, you might want to look to other investments for the short term.